CoC’s Decision on Non-payment of Salaries to Suspended Directors Couldn’t be Interfered With | NCLT

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  • Last Updated on 25 July, 2023

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non-payment of their salaries during the CIRP

Case Details: Babubhai Shrimali v. Committee of Creditors - [2023] 152 taxmann.com 199 (NCLT-Ahd.)

Judiciary and Counsel Details

    • Dr Deepti Mukesh, Judicial Member & Ajai Das Mehrotra, Technical Member
    • Ms Prachiti Shah, Adv. for the Applicant.
    • Rahul Sarda & Prafful Goyal, Advs. for the Respondent.

Facts of the Case

In the instant case, the financial creditor filed a Section 7 application against the corporate debtor initiating the CIRP. After the initiation of the CIRP, the applicants served as directors of the corporate debtor, however, due to non-payment of salaries, they later resigned from their respective posts.

The applicants contended that the Resolution Professional (RP) had asked them to render services and assured them that their salaries during the CIRP would be paid to them. When the salaries were not paid, the applicants filed an instant application under section 60(5) of the IBC against the CoC and RP.

It was noted that the applicants were part of the suspended board of directors of the corporate debtor on the date of initiation of CIRP and even after the initiation of the CIRP they had resigned from the post of directors. Thus, they fell under the category of related party of the corporate debtor, in terms of section 5(24) of the IBC.

The NCLT observed that Section 28 prescribes the acts for which the CoC approval is required to be taken by the IRP/RP. Further, as per section 28, the CoC approval is required to be taken by the RP to undertake any related party transaction and the CoC has the power to undertake or not to undertake related party transactions during the CIRP of the corporate debtor.

NCLT Held

The NCLT held that since the RP in various CoC meetings had placed a resolution for the payment of salary to the applicants, however, the CoC in its commercial decision had rejected the said resolution. Therefore, the decision of the CoC regarding the non-payment of salaries to the applicants could not be interfered with. Accordingly, the applications are disposed of.

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